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S&P’S Downgrading Of India: Warning To Market Economies

By on July 24, 2012

The year 2012 is a very significant year and if there is any country that has the challenge of stabilizing its political economy for sustainability it is India; that indeed is a major surprise for analysts of political economy. For those that have read the classic book ‘India Rising’ by Anand Girhardas it would not be surprising why the nation Mahatma Ghandi fought for was rated as a key global economic model in the acronym ‘BRICS’.

So why would this great nation that has experienced immense economic transformation from being a stagnant, static and slow economy to a fast, dynamic and innovation driven economy with strategic economic policies be recently downgraded by standards and poors rating agency.

A recent analysis by Indian Television NDTV reveals that the present Indian political- economic challenge could be traced to the political imbroglio in the ruling congress party between powerful politician sonia ghandi daughter of mahatma ghandi and the prime minister mamonham singh her ‘protégé’ in politics which could rock the Indian economy if properly managed.

Beginning of the year economic growth forecast revealed the need for the Indian Government to step up action and make decisive steps to sustain growth and development in the country and tackle the challenges of unemployment, poverty and stability.

It was on this basis that the government was considering reducing its subsidy on fuel, channelling the funds to improving infrastructure, research and innovation, tackling unemployment, poverty, underdevelopment in the rural areas,and improving the educational system.

Will this consideration and plan bring solution to the Indian economy? Professor Raghuram Rajan an authority in global political economic analysis, former Imf chief economist and Indian native in his recent article ‘The Broken BRIC:Why India’s economy is underperforming’ elucidated a menacing issue ravaging the ‘hub of information technology’.

He highlighted the fact that despite the laudable move from the license raj system the new drive for market capitalism and liberalization which put India on the poise as a fast growing economy with strategic reforms is at the moment stifled by the lack of sustainable potilical will of politicians.

Zeroing in on the GDP of the country Rajan is amazed at how India’s annual GDP has fallen by five percentage points since 2010 an indication of a structural lapse that needs to tactfully solved before it generates into a crisis.

So the recent downgrading of the Indian economy from the A rating by the standards and poors a prominent and reputable international financial rating agency is another ominous sign that things are not going well with the economy.

Despite the response and dismissal of the report by finance minister Mr Panab Murkejee that the economy is not in a downturn but rather on a path of sustainable development, recent events show that some factors could be contributing to this unfortunate downgrading.

Late last year distinguished parliamentarian Mr Hazare led an anti-corruption crusade were he embarked on a hunger strike decrying the high level of corruption in the government and pressurizing for the passage of the bill that will empower the state to squarely tackle corruption.

During this period there was the 2G scandal in telecommunications sector over bribery and corrupt practices carried out by government officials and some of the key telcos in the country, and the slow pace at which the issue was been handled by the government infuriated the public.

Early this year the Singh administration must have been ill-advised when it perfected policy plans to introduce new tax policies for foreign companies and investments, the decision was not well received by its fellow G-20 member states and pressures from the United States and the United Kingdom for the policy to be dropped succeeded when the prospects of losing increased Foreign Direct Inflows came dangling.

Like Professor Rajan stated in his article India’s fate is in its own hands,Why? Because as an emerging economy it has a very strong entepreneurial class, large and well educated middle-class, and a number of world-class corporations that can help support the economy.

What then is the Challenge? India is a knowledge driven economy and very industrious one, the onus is on Prime minister Singh to separate political interests from effective policies that should sustain and stabilize the country’s economic growth.

Resources must be allocated properly to tackle Infrastructural decay, unemployment and reduce the poverty rate in the country, but most importantly corruption must be exposed and dealt with ruthlessly if not eat will consume the polity.

If Incredible India can be downgraded by the S&P then other emerging and aspiring economies that aspire to attain the level of the ‘BRIC’ must note that beyond driving rapid reforms and foreign investments that will boost economic growth, the issues of corruption must be tackled and policies that will sustain growth and development should be sustained.

By Ottoabasi Abasiekong, [email protected]